Voetstoots clause no defence against fraud

The voetstoots clause has historically been championed as a sound defence mechanism for a seller to contract out of liability against a buyer’s claim based on a discovery of a latent defect. However, recent case law has held that this defence falls away in the case of a seller behaving fraudulently.

A ‘defect,’ as defined by the courts, is something that substantially impairs the use or effectiveness of the asset purchased. A ‘latent defect’ is defined as a defect that is not visible or discoverable upon inspection. A buyer may be entitled to cancel a sale on discovery of a latent defect, and claim full repayment of the purchase price and interest or request a deduction, depending on the nature of the defect. In this context, ‘fraudulent’ is interpreted to include instances where the seller knew about the latent defect and deliberately concealed it from the buying, thus reneging on their duty to disclose it.

This is evident in the recent case of Ellis vs Cilliers. When a buyer purchased a property and subsequently discovered that the floors were uneven, the court held that this amounted to latent defect. The seller, in turn, was found to have behaved fraudulently by laying cement screed over the wooden floors and covering them with carpets and tiles to deliberately conceal the unevenness.

Despite the fact that the contract of sale included a voetstoots clause, the court held that the presence of fraudulent conduct meant that the seller could not rely on it to escape liability. The court found that the seller was aware of the uneven flooring and fraudulently and deliberately concealed the defect. This meant that the purchaser was entitled to relief, in the form of its proven damages, plus legal costs.

Although purchasers can be secure in the knowledge that the law protects them from latent defects, due diligence at the time of purchase is a far less costly and time-consuming route to follow. Sellers should also be mindful, that while they may be protected by a voetstoots clause, they will be liable for any genuine latent defects and should never embark on conduct designed to mislead an unsuspecting purchaser. South Africans are enjoying a greater emphasis on consumer protection than previously, and are taking a strong approach to this issue. This is clearly illustrated in the outcome of this judgment.

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